The Harmonized System (HS) is the standardized coding of names and numbers used in international trade to classify products. Over 200 countries representing about 98% of world trade use the HS as a basis for customs tariffs and the compilation of international trade data and statistics.
The Harmonized System is maintained by the World Customs Organization (WCO), an independent intergovernmental organization based in Brussels. Canada is a member of the WCO.
The classification of products in the Canadian Customs Tariff is based on the Harmonized System. The Canadian Customs Tariff consists of about 10,000 classification numbers. In Canada, the tariff classification number consists of 10 digits that expands on the six-digit classification codes set out in the HS. The first six digits based on the HS can be broken down into three parts. The first two digits (HS-2) identify the chapter in which the goods are classified. For example, 09 is the chapter referring to “coffee, tea, maté and spices.” The next two digits, or HS-4, identifies groupings within that chapter, so 09.02, for example, would refer to “tea, whether or not flavoured.” The next two digits (HS-6) are even more specific; the code 09.02.10 refers to green tea (not fermented). The first six digits are standardized with all countries using the international tariff. The next two digits, the seventh and eighth, further distinguish product variations for Canadian trade purposes and the last two digits are for Canadian statistical purposes. Other countries maintain codes beyond the 6-digit level that often differ from Canada’s codes.
For Kinova, a Montreal company that makes advanced robotic arms, finding an HS code was not so simple. “Our highly specialized robotic arms did not really have a clearly defined number because our product is so new,” says Laurie Paquet, Kinova’s director of business development. “One code that our product could have fallen under when exported to the Netherlands carried a 19% tariff while another code had a 3% tariff. It’s a question of zeroing in on the code that customs officials in Canada and your export market use. This can take a lot of time. I was able to determine the correct code for our product in France but realized this was too much work for us to do so we now hire a customs broker to handle this.”
“HS is complex,” says Michelle Criger of the Canadian Society of Customs Brokers. “While customs brokers invest in training and systems to be able to bring companies knowledge about tariff schedules, customs regulations and product classification, it’s up to the importing country to make a final call on what your product’s HS code is. Every country could have a different interpretation of what is covered under the same six-digit code. It’s important to note that customs brokers don’t negotiate with foreign officials or get involved in disputes over HS codes,” she says. “That’s where the World Customs Organization comes in.”
The World Customs Organization’s Harmonized System Committee is the international authority on HS code classification. The HSC’s main roles include:
- Resolving classification disputes between member administrations;
- Issuing classification decisions for goods presented by member administrations;
- Working to ensure the uniform interpretation of the HS codes; and
- Updating the HS to include changes in technology and patterns of trade.
As an importer or exporter, companies are responsible for the correct declaration of goods. Non-compliance can result in delays at the time goods are released, the suspension of privileges, and monetary penalties assessed under the Administrative Monetary Penalty System.
The HS also contributes to the harmonization of customs and trade procedures. It is extensively used by governments, international organizations and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, and economic research and analysis.
RESOURCES FOR CANADIANS
For a list of countries and their applicable tariff treatments, visit the World Customs Organization online. Visit the Canada Border Services Agency’s Small and Medium-sized Enterprise Centre online where you can register for free information seminars.
For general inquiries, call the Border Information Service at 1-800-461-9999. From outside Canada call 204-983-3500 or 506-636-5064. Long distance charges will apply. Agents are available Monday to Friday (08:00 – 16:00 local time/except holidays). TTY within Canada: 1-866-335-3237.
Canadian companies may also consider hiring a customs broker. Visit the Canadian Society of Customs Brokers for more information.
Reprinted with permission from Canadian Trade Commissioner Service’s CanadExport online magazine.